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Ukraine markets in everything
A new internet-only exchange, the so-called Deposit Exchange, has opened in Ukraine. It enables people whose bank deposits have been frozen in banks of questionable solvency to sell the money in those deposits at a discount. The buyers of the frozen deposits, although they cannot withdraw the money, can use the full value of the deposits to cover the value of loans issued by the banks for home, car and land purchases on which customers have defaulted, and thereby take possession of the repossessed property. Currently the discounts on buying a frozen deposit are in the range 10-34% (Lenta.ru, in Russian).
I thank Matthew Bown for the pointer.
Posted by Tyler Cowen on March 2, 2009 at 12:08 PM in Economics | Permalink
Comments
Mr. Potter would be proud.
Posted by: Oskar Shapley at Mar 2, 2009 1:06:37 PM
This creative way (http://deposit.tender.ua) to circumvent the unfolding banking crisis in Ukraine (manifested, inter alia, by the freeze of deposits and households' inability to service forex loans as the national currency depreciated by 50 pc) is the less of two evils. Barter which was the curse of Ukraine's economy in mid-90s is back. Like this exchange, barter exchange has been recently launched as well - http://www.barterua.com. Construction companies exchange the stock of unsold apartments for windows, cement and bricks to finish constructions because their access to banking credit was halted. Paper to print newspapers is swaped for advertizing etc.
In mid-90s, along a highway leading to Kiev (the capital) there were dozens of people selling tyres. Those were employees of a tyre factory who got their wages in-kind. Those times may be back
Posted by: Ihor Ukraine at Mar 2, 2009 1:36:47 PM
Brilliant. Now all we need is a California Tax Refund Exchange.
Posted by: at Mar 2, 2009 2:20:30 PM
Wait...what?
The buyers can use the money in the frozen accounts to payoff loans they have with the same bank?
That's...I don't even know what that is. I pay Serge 6,000 grivna for his frozen bank account with 9,000 grivna to pay off the 9,000 grivna loan I took out for the motorcycle that was just repossessed. So Serge is out 3,000, but that's better than being out the whole 9,000. I get my motorcycle back and the bank has a loan closed out on their books.
Posted by: Xmas at Mar 2, 2009 10:04:24 PM
This internet-based exchange is basically hi-tech version of the post-Soviet barter economy. In the early 1990s companies used barter to overcome liquidity constraints and credit crunch. The concept of barter is well summarized by Russian proverb "A soap is swapped for a needle". So the old buddy is coming back to solve the same problems. We'll see how it'll work.
From what I know, people prefer to sell deposits for cash or exchange deposits for consumer goods in person. There are several working mechanisms at present moment. The most straightforward approach is a purchase of someone's deposit in bank A at a discounted rate in order to use it as a credit payment in the same bank. While demand side of this transaction is more than less obvious, a supply side may reasonably hesitate to do this because of the following reasons. In a case of bank A's bankruptcy, Ukraine's National Bank (NBU) will reimburse deposits up to $9,000. Moreover, according to NBU, banks should start making regular payments on frozen deposits, not exceeding $500 per day, this or next week. And, finally, consider an irreversible partial loss (10-30%) of your deposit in case of its sale to the third party. And going back to the demand side, I should mention that banks are extending grace periods for couple months where the extension period depends on each bank individually. Yet no banks reported a transfer of deposits to pay off the third party's credit payments.
The second barter mechanism which is working now is exchange of someone's deposit in bank A for someone's product/service who needs to make credit payments in bank A. This transaction mostly works for construction companies which suffered a lot from 30% drop in housing prices and temporary credit crunch. Several banks reported that kind of transaction.
Posted by: Leo at Mar 3, 2009 5:04:28 PM
Sounds a lot like the US during the 1933 bank holiday. Everyone became his or her own bank issuing scrip, either in the form of a check or an IOU. We should let the banks fail. People will reinvent their own in a few days. They are completely expendable.
Posted by: Kaleberg at Mar 3, 2009 10:18:23 PM
